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A growing middle-class will attract more investments

At the turn of the millennium The Economist magazine published a story under a headline: “Hopeless Africa” – the story framed Africa so hopeless that events of conflict in Sierra Leone, famine in Ethiopia, floods in Mozambique and Madagascar, and a troubled government in Zimbabwe were nearly enough to render the continent a lost cause.

At the turn of the millennium The Economist magazine published a story under a headline: “Hopeless Africa” – the story framed Africa so hopeless that events of conflict in Sierra Leone, famine in Ethiopia, floods in Mozambique and Madagascar, and a troubled government in Zimbabwe were nearly enough to render the continent a lost cause.

Interestingly, the article also contended that: “no one can blame Africans for the weather, but most of the continent’s shortcomings owe less to acts of God than to acts of man.”

I have no qualms with such a proposition simply because I find it to be true that acts of man have been to blame for most of Africa’s problems –conflicts, poverty, inequality, corruption, terrorism, you name it. Indeed, man, including man from overseas, has been commander-in-chief of the continent’s problems.

As you would expect, ‘hopeless Africa’ was not a view shared only by the English weekly news magazine.

Nearly two decades earlier, musicians Bob Geldof and Midge Ure joined hands with the rest of the world to raise money for anti-famine efforts in Ethiopia under the Band Aid initiative. Since then, countless aid organisations have flocked in to ‘save’ Africa.

In any case, while African countries have had their fair share of problems much like many other countries elsewhere, there is a serious wind of change that needs to be noted.

For instance, if you have visited Rwanda recently, then you know that a lot can change in 24 hours not to mention a decade or so! Accordingly, a decade and a half after the Economist article, a lot of good has happened not just in Sierra Leone and Ethiopia, but also in countries that seemed beyond restoration.

This piece seeks to highlight the emerging middle-class group as a major pillar of economic growth in countries like Rwanda, and by extension, stress the need for policymakers to nurture and leverage this group for economic and social purposes, especially when pitching for foreign direct investment.

But first things first, who exactly belongs in the middle-class group and why is this group considered crucial for economic growth?

First, economic experts like Mario Pezzini of the OECD Development Centre, have suggested that in many developing countries, the increase in average incomes and the fall in levels of absolute poverty, particularly during the last decade, have created a segment in society known as the middle-class, which consumer data show spends disposable income more than any other income group.

For instance, sales for home appliances like refrigerators, television-sets and telecommunication electronics like mobile phones and personal computers, and even heavy machinery like motor vehicles, have all increased in almost every African country.

The Observer, another UK-based publication, reports that ownership of cars and motorcycles in Ghana has increased by 81 per cent since 2006.

That said, defining middle-income status for individuals is still a complicated matter because of the global variations in cost of living.

For instance, while the United Nations outlines a middle-class individual as someone living on $10-$100 a day (global measure), the African Development Bank (AfDB), on the other hand, focuses only on the African continent and defines middle-class status as someone living on $2-$20 a day.

By these standards, AfDB tells us that the narrative of ‘an emerging middle-class in Africa’ isn’t just rhetoric but a reality. In fact, according to the continental bank, in 2010, there were over 313 million (34 per cent of the total population) considered as middle-class.

This figure is up from 196 million (27 per cent) in 2000, and 111 million (26 per cent) in 1980. Therefore, we can safely assume that there is indeed an emerging middle-class in Africa, and for several reasons, this group needs to be taken seriously by policymakers and investors alike.

Here in Rwanda where I have been for the past week, consumer spending is also apparent; almost everyone I have met owns a mobile phone – it is no longer a luxury, almost every home I have visited has a television-set, and as for motor vehicle and motorcycle ownership, you only have to be on one of Kigali’s roads during morning and evening rush-hour to truly appreciate the changes.

And while I know that this kind of consumer spending is not widely spread all over the country, I rely on projections to emphasise that it is just a matter of time before it spreads.

This is a projection shared by the McKinsey Global Institute which stresses that consumer spending in Africa is set to reach levels of over $1.4 trillion in the next four years, up from an estimated $860 billion in 2008.

Therefore, if these predictions are anything to go by, Rwanda’s emerging middle-class is set to be a critical economic and social pillar because of the group’s potential to not only improve human capital that comes from investing in education and health infrastructure, but also its potential to create and maintain a strong and stable demand base for both local and international products.

A report from the Brookings Institution suggests that middle-class families are more likely to spend on food, electronics, eating out, and entertainment than the super-rich, and as you would expect, those on low-income.

The middle-class is marked by changing lifestyles, greater spending power, more recreational time, and harnessing of new technology, all of which are factors that can be connected to pitch for more investment in critical areas such as infrastructure, energy, healthcare, education, banking, and so on.

In summary, it is beyond doubt that African countries like Rwanda have had their troubles, troubles which have for a long time attracted all kinds of people to come in with an approach to ‘save’ us instead of investing in economic activities.

But the time has come for this approach to change. African nations like Rwanda have an emerging group of people with disposable income – they just need what to spend it on.

Similarly, policymakers should endeavour to nurture and ultimately leverage this group since it is a key pillar of economic growth in terms of consumption, value added tax, human capital.

This group is capable of sustaining a strong demand base for products including services, which is music to investors. But whatever is done, let the private sector not pass on a chance to produce goods and services consumed by the middle-class. It would be a shame to sleep on the wheel.